MBA essay 代写指导
08-19, 2014
1988年4月12日,印度证券交易委员会(SEBI)建立了一个双目标保护小投资者的权利和规范和发展股票市场的策略。
1992年,在印度的主要的证券交易所——孟买证交所(BSE),第一次见证了Harshad Mehta (Mehta)的重大骗局。
结果,印度政府(GoI)建立了一个单独立法的“1992年印度证券交易委员会法案”和法定权力。自那以后,印度证券交易委员会引入了股票市场的改革。这些改革极大地改变了印度股市。印度证券交易委员会介绍在线股票交易取代了古老的纸质交易,从而给交易系统中带来了更多的透明度。
尽管多年来印度证券交易委员会一直促进资本市场的改革且监督股票市场的发展进程,但是分析师认为它在阻止股市诈骗上已经是失败的了。随后十年的Mehta骗局和其他几个骗局曝光,不禁让人们怀疑印度证券交易委员会作为监管机构的效率。
Protecting the rights of small investors
INTRODUCTION
On April 12, 1988, the Securities and Exchange Board of India (SEBI) was established with a dual objective of protecting the rights of small investors and regulating and developing the stock markets in India.
In 1992, the Bombay Stock Exchange (BSE), the leading stock exchange in India, witnessed the first major scam masterminded by Harshad Mehta (Mehta).
As a result, the Government of India (GoI) brought in a separate legislation by the name of 'SEBI Act 1992' and statutory powers to it. Since then, SEBI had introduced several stock market reforms. These reforms significantly transformed the face of Indian stock markets. SEBI introduced on-line trading and demat of shares which did away with the age-old paper-based trading, thus bringing more transparency into the trading system.
In spite of SEBI's capital market reforms and increasing regulatory powers over the years, analysts felt that it had failed miserably in stopping stock market scams. In the ten years after the Mehta scam, several scams came to light, casting doubt on the efficiency of SEBI as a regulatory body
SEBI AS A REGULATOR
The Indian economy was liberalized in 1991. In order to achieve the full potential of liberalization and enable the Indian stock market to attract huge investments from foreign institutional investors (FIIs), it was necessary to introduce a series of stock market reforms.
SEBI's efforts to boost investments in the capital markets faced a severe setback in 1992 when Mehta's illegal activities led to a stock market scam. Mehta had managed to obtain huge funds from top banks and financial institutions in India, including State Bank of India, Stanchart, National Housing Bank, Citibank and ANZ Grindlays, to manipulate stock prices, which rose significantly.#p#分页标题#e#
Between September 1991 and April 1992, the BSE index went up by 143%. However, when the prices crashed, several small investors lost their hard-earned money. The amount involved in this crisis was approximately Rs.54 bn. SEBI's inefficiency in regulating the markets was brought to light for the first time.
FINANCIAL MARKET OVERVIEW
Financial Market Overview can be defined as the overall picture of a financial market. A financial market is basically a market for financial products which puts all its sellers in one place so that it can facilitate its trade and the subsequent raising of capital.
Financial markets can consist of the capital markets or the Stock Exchange trading in stocks, bonds and warrants, the Money markets, the Derivatives markets providing instruments for the management of financial risk as well as the Futures and Insurance markets.
The financial market overview can provide certain key information about the financial markets in general such as the stock market quotes, business news and financial news such as mergers and acquisitions affecting the financial market scenario.
Financial System
Financial Markets
A Financial Market can be defined as the market in which financial assets are created or transferred. Financial Assets or Financial Instruments represents a claim to the payment of a sum of money sometime in the future and /or periodic payment in the form of interest or dividend.
Money Market- The money market ifs a wholesale debt market for low-risk, highly-liquid, short-term instrument. Funds are available in this market for periods ranging from a single day up to a year. This market is dominated mostly by government, banks and financial institutions.
Capital Market -The capital market is designed to finance the long-term investments. The transactions taking place in this market will be for periods over a year.
Forex Market - The Forex market deals with the multicurrency requirements, which are met by the exchange of currencies. Depending on the exchange rate that is applicable, the transfer of funds takes place in this market. This is one of the most developed and integrated market across the globe.
CAPITAL MARKET
A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets (e.g., the money market). The capital market includes the stock market (equity securities) and the bond market (debt).
Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere.#p#分页标题#e#
Capital market is one of the most important segments of the Indian financial system. It is the market available to the companies for meeting their requirements of the long-term funds. It refers to all the facilities and the institutional arrangements for borrowing and lending funds.
The Indian capital market is broadly divided into the gilt-edged market and the industrial securities market.
The gilt-edged market refers to the market for Government and semi-government securities, backed by the Reserve Bank of India (RBI). Government securities are trade able debt instruments issued by the Government for meeting its financial requirements. The term gilt-edged means 'of the best quality'. This is because the Government securities do not suffer from risk of default and are highly liquid.
The industrial securities market refers to the market which deals in equities and debentures of the corporate. It is further divided into primary market and secondary market.
Primary market (new issue market):- deals with 'new securities', that is, securities which were not previously available and are offered to the investing public for the first time. It is the market for raising fresh capital in the form of shares and debentures. The new offerings by the companies are made either as an initial public offering (IPO) or rights issue.
Secondary market/ stock market (old issues market or stock exchange):- is the market for buying and selling securities of the existing companies. Under this, securities are traded after being initially offered to the public in the primary market and/or listed on the stock exchange.
Role of Capital Markets
Mobilization of Savings & acceleration of Capital Formation
Promotion of Industrial Growth
Raising of long term Capital
Ready & Continuous Markets
Proper Channelization of Funds
Provision of a variety of Services
Functions of a Capital Market
Disseminate information efficiently
Enable quick valuation of financial instruments -both equity and debt
Provide insurance against market risk or price risk
Enable wider participation
Provide operational efficiency through
simplified transaction procedure
lowering settlement timings and
lowering transaction costs
SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)
Sebi - Introduction
In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992
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The basic objectives of the Board were identified as:
to protect the interests of investors in securities
to promote the development of Securities Market
to regulate the securities market and
for matters connected therewith or incidental thereto
Since its inception SEBI has been working targeting the securities and is attending to the fulfillment of its objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the market.
SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating agencies, underwriters and others.
It has framed bye-laws, risk identification and risk management systems for Clearing houses of stock exchanges, surveillance system etc. which has made dealing in securities both safe and transparent to the end investor.
However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment to include "derivatives" in the definition of securities to enable SEBI to introduce trading in derivatives. The necessary amendment was then carried out by the Government in 1999. The Securities Laws (Amendment) Bill, 1999 was introduced. In December 1999 the new framework was approved.
Derivatives have been accorded the status of ——Securities'. The ban imposed on trading in derivatives in 1969 under a notification issued by the Central Government was revoked. Thereafter SEBI formulated the necessary regulations/bye-laws and intimated the Stock Exchanges in the year 2000. The derivative trading started in India at NSE in 2000 and BSE started trading in the year 2001.
Functions of Sebi
Regulating the business in stock exchanges and any other securities markets
Registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets in any manner
Registering and regulating the working of [venture capital funds and collective investment schemes], including mutual funds;
Promoting and regulating self-regulatory organizations;
Prohibiting fraudulent and unfair trade practices relating to securities markets;
Promoting investors' education and training of intermediaries of securities markets;
Prohibiting insider trading in securities;#p#分页标题#e#
Regulating substantial acquisition of shares and take-over of companies;
Calling for information from, undertaking inspection, conducting inquiries and audits of the [stock exchanges, mutual funds, other persons associated with the securities market] intermediaries and self- regulatory organizations in the securities market
FINANCIAL INSTRUMENTS
Capital market instruments
The capital market generally consists of the following long term period i.e., more than one year period, financial instruments;
In the equity segment Equity shares, preference shares, convertible preference shares, non-convertible preference shares etc and in the debt segment debentures, zero coupon bonds, deep discount bonds etc.
Equity shares
Share or stock is also known as an equity share as well. The equity share basically represents ownership in the company. When a company needs capital or money to operate, it generates the required funds by selling ownership in the company. This means that the company issues equity shares for a price and these shares represent ownership in the company for the one who purchases the shares. These shares are an ownership in the company and give the owner the right to have a share in the profits of the firm.
Preference shares
Preference Shares means shares which fulfill the following 2 conditions. Therefore, a share which is does not fulfill both these conditions is an equity share.
It carries Preferential rights in respect of Dividend at fixed amount or at fixed rate i.e. dividend payable is payable on fixed figure or percent and this dividend must paid before the holders of the equity shares can be paid dividend.
It also carries preferential right in regard to payment of capital on winding up or otherwise. It means the amount paid on preference share must be paid back to preference shareholders before anything in paid to the equity shareholders. In other words, preference share capital has priority both in repayment of dividend as well as capital.
Types of Preference Shares
1. Cumulative or Non-cumulative:
A non-cumulative or simple preference shares gives right to fixed percentage dividend of profit of each year.
Cumulative preference shares however give the right to the preference shareholders to demand the unpaid dividend in any year during the subsequent year or years when the profits are available for distribution
2. Redeemable and Non- Redeemable:
Redeemable Preference shares are preference shares which have to be repaid by the company after the term of which for which the preference shares have been issued.
Irredeemable Preference shares means preference shares need not repaid by the company except on winding up of the company.#p#分页标题#e#
Debentures
Atype of debt instrument that is not secured by physical asset or collateral.Debentures are backed only by the generalcreditworthinessandreputation of the issuer.Both corporations and governments frequently issue this type of bond in order to secure capital.Like other types of bonds, debentures are documented in an indenture.
Debentures have no collateral.Bond buyers generallypurchase debentures based onthe belief that the bond issuer is unlikely to default on the repayment.An example of a governmentdebenture would be any government-issuedTreasury bond (T-bond) or Treasury bill (T-bill). T-bonds and T-billsare generally considered riskfree because governments, at worst,canprint off more money or raise taxes to paythese types of debts.
Zero coupon bonds
Debt security that doesn't pay interest (a coupon) but is traded at a deep discount, renderingprofit at maturity whenthe bondis redeemed for its full face value.
Also known as an "accrual bond"
Some zero-coupon bondsare issued as such,while others are bonds that have beenstrippedof theircoupons by a financial institution and then repackaged as zero-coupon bonds.Because they offer the entire payment at maturity,zero-coupon bondstend to fluctuate in price much more than coupon bonds.
Deep discount bonds
A bond that sells at a significant discount from par value.
A bond that is selling at a discount from par value and has a coupon rate significantly less than the prevailing rates of fixed-income securities with a similar risk profile.
Typically, a deep-discount bond will have a market price of 20% or more below its face value. These bonds are perceived to be riskier than similar bonds and are thus priced accordingly.
These low-coupon bonds are typically long term and issued with call provisions. Investors are attracted to these discounted bonds because of their high return or minimal chance of being called before maturity.
NEW INSTRUMENTS OF CAPITAL MARKET
Pure Discount Instrument
A type of security that pays no income until maturity; upon expiration, the holder receives the face value of the instrument. The instrument is originally sold for less than its face value (at a discount). Pure discount instruments can take the form of zero-coupon bonds or Treasury bills.
Hybrid Instruments
Hybrid instruments have both the features of equity and debenture. This kind of instruments is called as hybrid instruments. Examples are convertible debentures, warrants etc.
Derivatives
Derivatives are generally used as an instrument to hedgerisk, but can also be used forspeculative purposes. For example, a European investor purchasing shares of an American companyoffof an American exchange (using U.S. dollars to do so) would be exposed to exchange-rate risk while holding that stock. To hedge this risk, the investor could purchase currency futures to lock in a specified exchange rate forthe future stock sale and currency conversion back into Euros.#p#分页标题#e#
MONEY MARKET INSTRUMENTS
Call /Notice-Money Market
Call/Notice money is the money borrowed or lent on demand for a very short period. When money is borrowed or lent for a day, it is known as Call (Overnight) Money. When money is borrowed or lent for more than a day and up to 14 days, it is "Notice Money". No collateral security is required to cover these transactions.
Inter-Bank Term Money
Inter-bank market for deposits of maturity beyond 14 days is referred to as the term money market. The entry restrictions are the same as those for Call/Notice Money except that, as per existing regulations, the specified entities are not allowed to lend beyond 14 days.
Treasury Bills.
Treasury Bills are short term (up to one year) borrowing instruments of the union government. It is an IOU of the Government. It is a promise by the Government to pay a stated sum after expiry of the stated period from the date of issue (14/91/182/364 days i.e. less than one year). They are issued at a discount to the face value, and on maturity the face value is paid to the holder. The rate of discount and the corresponding issue price are determined at each auction.
Certificate of Deposits
Certificates of Deposit (CDs) is a negotiable money market instrument issued in dematerialized form or as a Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period. Guidelines for issue of CDs are presently governed by various directives issued by the Reserve Bank of India, as amended from time to time.
Commercial Paper
CP is a note in evidence of the debt obligation of the issuer. On issuing commercial paper the debt obligation is transformed into an instrument. CP is thus an unsecured promissory note privately placed with investors at a discount rate to face value determined by market forces.
PRIMARY MARKET
The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus.
Features of primary markets are:
This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).
In a primary issue, the securities are issued by the company directly to investors.
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The company receives the money and issues new security certificates to the investors.
Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.
The primary market performs the crucial function of facilitating capital formation in the economy.
The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public."
The financial assets sold can only be redeemed by the original holder.
Methods of issuing securities in the primary market are:
Initial public offering;
Rights issue (for existing companies);
Preferential issue.
SECONDARY MARKET
The secondary market, also known as the aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold. The term "secondary market" is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market
The secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of publicly traded companies.
Functions of secondary market
Secondary marketing is vital to an efficient and modern capital market. In the secondary market, securities are sold by and transferred from one investor or speculator to another. It is therefore important that the secondary market be highly liquid.
As a general rule, the greater the number of investors that participate in a given marketplace, and the greater the centralization of that marketplace, the more liquid the market.
Fundamentally, secondary markets mesh the investor's preference for liquidity (i.e., the investor's desire not to tie up his or her money for a long period of time, in case the investor needs it to deal with unforeseen circumstances) with the capital user's preference to be able to use the capital for an extended period of time.
Accurate share price allocates scarce capital more efficiently when new projects are financed through a new primary market offering, but accuracy may also matters in the secondary market because:
price accuracy can reduce the agency costs of management, and make hostile takeover a less risky proposition and thus move capital into the hands of better managers, and#p#分页标题#e#
Accurate share price aids the efficient allocation of debt finance whether debt offerings or institutional borrowing.
MUTUAL FUNDS
A mutual fund is a managed group of owned securities of several corporations. These corporations receive dividends on the shares that they hold and realize capital gains or losses on their securities traded. Investors purchase shares in the mutual fundas if it was an individual security. After paying operating costs, the earnings (dividends, capital gains or losses) of the mutual fund are distributed to the investors, in proportion to the amount of money invested.
A mutual fund may be either an open-end or a closed-end fund. An open-end mutual fund does not have a set number of shares; it may be considered as a fluid capital stock. The number of shares changes as investors buys or sell their shares.
Investors are able to buy and sell their shares of the company at any time for a market price. However the open-end market price is influenced greatly by the fund managers. On the other hand, closed-end mutual fund has a fixed number of shares and the value of the shares fluctuates with the market. But with close-end funds, the fund manager has less influence because the price of the underlining owned securities has greater influence.
Types of mutual funds
Most funds have a particular strategy they focus on when investing. For instance, some invest only in Blue Chip companies that are more established and are relatively low risk. On the other hand, some focus on high-risk startup companies that have the potential for double and triple digit growth.Finding a mutual fundthat fits your investment criteria and style is important. Types of mutual funds are:
Value stocks
Stocks from firms with relative low Price to Earning (P/E) Ratio usually pay good dividends. The investor is looking for income rather than capital gains.
Growth stock
Stocks from firms with higher low Price to Earning (P/E) Ratio usually pay small dividends. The investor is looking for capital gains rather than income.
Based on company size, large, mid, and small cap
Stocks from firms with various asset levels such as over $2 Billion for large; in between $2 and $1 Billion for mid and below $1 Billion for small.
Income stock
The investor is looking for incomes which usually come from dividends or interest. These stocks are from firms which pay relative high dividends. This fund may include bonds which pay high dividends. This fund is much like the value stock fund, but accepts a little more risk and is not limited to stocks.
Index funds
The securities in this fund are the same as in an Index fund such as the Dow Jones Average or Standard and Poor's. The number and ratios or securities are maintained by the fund manager to mimic the Index fund it is following.#p#分页标题#e#
The SEBI (Mutual Funds) Regulations, 1996
The revised regulations embodied far reaching changes in the regulation and functioning of mutual funds. The revised regulations provide for
enhanced level of investor protection
empowerment of investors
stringent disclosure norms in the offer documents, so that investors are better informed, better advised, better aware of risks and rewards
standardization of norms for valuation of assets, computation of Net Asset Values (NAVs) of schemes of mutual funds and accounting standards and policies
complete freedom to asset management companies to structure schemes in accordance with investor preferences
removal of quantitative restrictions on investment by mutual funds and replacement by prudential supervision
replacement of vetting of offer documents by filing
guaranteed return schemes by mutual funds permitted provided returns including capital were guaranteed
indication of expected returns based on hypothetical portfolio permitted
better governance of mutual funds through higher responsibilities and empowerment of trustees as front-line regulators of mutual funds
closer scrutiny through off site and onsite inspections
code of ethics for asset management companies
IMPACT
The impact of the new regulations was immediately felt. Asset management companies framed several schemes which made use of the freedom provided to them by the new regulations. Not only did the number of schemes filed with SEBI increase significantly in a short period of time, but also there was greater variety in the investment products offered. There was also a significant improvement in disclosures in the offer documents.
The new regulations have brought into greater focus the responsibilities of trustees of mutual funds who are uniquely positioned to promote the interests of the unit holders and to ensure that mutual funds are managed responsibly and ethically. SEBI is using its interface with AMFI to assess the impact of the new regulations on the working of mutual funds and to examine further ways of improving the performance of mutual funds so as to restore investor confidence in them.
NON-BANKING FINANCE COMPANIES
A non-banking financial company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business, but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property.#p#分页标题#e#
A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme of arrangement or any other manner, or lending in any manner is also a non-banking financial company
Amendments to NBFC Regulations
There are a number of Government NBFCs which fall within the ambit of RBI Regulations. The Government Department or the Ministry or the Bureau of Public Enterprises to which such companies are attached, are expected to prescribe the norms for their operations on healthy lines and monitor their financial health.
The NBFCs have been voicing their problems in securing desired lots of Government securities in small towns and localities in the country. In order to increase operational ease in maintenance of liquid assets
The NBFCs have been permitted to maintain up to 5 percent of the public deposits in the form of term deposits with scheduled commercial banks out of present requirement of 15 percent of public deposits to be invested in liquid assets.
It may also be reiterated that the NBFCs holding public deposits should scrupulously furnish the liquid asset return on quarterly basis and the delay in submission or non-submission thereof would be viewed seriously
NBFCs changing their name, more particularly to add InfoTech tag with a view to taking advantage of the capital market sentiments, which may not only jeopardize the interest of the depositors, but also of the investors. Such a change in the name and the business plan of the company may also result into the principal business of the NBFC becoming non-financial, thereby affecting its eligibility for grant and holding of Certificate of Registration under Section 45-IA (4) of the RBI Act.
NBFCs vanishing after mobilization of capital, deposits, etc. from public, raising grave supervisory concerns. Since the present regulatory framework is aimed at ensuring that registration is granted only to serious and bonfire players in the NBFC sector, it has been decided to place on record details of Permanent Account Number issued by Income Tax Authorities, of each of the directors of all NBFCs whether registered or whose applications for Certificate of Registration are pending with the Bank.
DEPOSITORIES
A depository is an entity where the securities of an investor are held in electronic form. Depositories help in the settlement of the dematerialized securities. Each custodian /clearing member is required to maintain a clearing pool account with the depository. He is required to make available the required securities in the designated account on settlement day.
The depository runs an electronic file to transfer the securities from accounts of the custodians/clearing member to that of Clearing Corporation. As per the schedule of allocation of securities determined by the Clearing Corporation, the depositories transfer the securities on the payout day from the account of the Clearing Corporation to those of members/custodians.#p#分页标题#e#
Every investor who wants to hold securities in dematerialized form must open an account with a depository participant (DP) of his choice. Usually this is done byyour broker on behalfof you. Depository Participants (DPs) hold accounts with depositories.
Just as one can hold funds in a bank account and transfer funds across accounts without actually handling cash; one can hold securities in a depository account and transfer securities across depository accounts without actually handling share certificates.
There are two main depositories in India.
National Securities Depository Ltd (NSDL)
Central Depository Services Ltd (CDSL)
NSDL is the first and largest depository in India. It established in August 1996. The Basic functions ofa depository are
Maintaining dematerialized accounts
Transfer of shares across DP accounts and iner-depository transfers
Crediting Accounts in case of Corporate Actions like Dividend issue, Rights issue etc.
Some other value added services like managing intermediary accounts for SLB (Stock Lending and Borrowing), IPOs and National Savings Certificates etc.
INSTRUMENTS ISSUED OUTSIDE INDIA
FCCBs
A type of convertible bondissued in a currency different than the issuer's domestic currency.In other words, the money being raised by the issuing companyis in the form of aforeigncurrency. A convertible bond is a mix between a debt and equity instrument. It acts likea bond by making regular coupon and principalpayments, but these bonds also give the bondholder the option to convert the bond into stock.
These types of bonds are attractive to both investors and issuers. The investors receive the safety of guaranteed payments on the bond and arealso able to take advantage of any large priceappreciation in the company's stock. (Bondholders take advantage of thisappreciation by means warrants attached to the bonds, which are activated when the price of the stock reaches a certain point.)Due to theequity sideof the bond, which adds value, the couponpayments on the bond are lower for the company,therebyreducingits debt-financing costs.
GDR
A Global Depository Receipt or Global Depositary Receipt (GDR) is a certificate issued by a depository bank, which purchases shares of foreign companies and deposits it on the account. GDRs represent ownership of an underlying number of shares.
Global Depository Receipts facilitate trade of shares, and are commonly used to invest in companies from developing or emerging markets.
Prices of GLOBAL DEPOSITARY RECEIPT are often close to values of related shares, but they are traded and settled independently of the underlying share.
Several international banks issue GDRs, such as JPMorgan Chase, Citigroup, Deutsche Bank, Bank of New York. GDRs are often listed in the Luxembourg Stock Exchange and in the London Stock Exchange, where they are traded on the International Order Book (IOB). Normally 1 GDR = 10 Shares, but not always.#p#分页标题#e#
American Depositary Receipt - ADR
A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) ina foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help to reduce administration and duty costs that would otherwise be levied on each transaction.
This is an excellent way to buy shares in a foreign company whilerealizing any dividends and capital gains in U.S.dollars. However, ADRs do not eliminate the currency and economic risks for the underlying shares in another country.For example, dividend payments in Euros would be converted to U.S. dollars, net of conversion expenses and foreign taxes and in accordancewith thedeposit agreement.ADRs are listed on the NYSE, AMEX or NASDAQ.
REGULATION OF MONEY MARKET
Characteristics of Indian money market:
The Indian money market suffers from a number of defects; the prominent of these are as follows;
The Indian money market is not integrated one. It is divided in two sectors the financial operations of both the sectors are independent to each other. The activities of both the sectors are also independent and have no impact on each other. Therefore, it is very difficult to establish a national money market.
The constituents of the money market are competing each other rather the cooperating each other. The Reserve Bank of India has no control over indigenous bankers. Further, the monetary policy of the Reserve Bank of India has not been found sufficiently effective to maintain adequate integration among the various constituents of the Indian Money market.
The Indian money market also suffers from shortage of funds. The demand for funds is much more than the supply of funds. There are so many reasons for the shortage of funds such as, poverty, black money, parallel economy, inadequate banking facilities.
The development of banking facilities in the rural sector in the recent past and recently the lowering of cash reserve ratio by Reserve Bank of India has improved the mobilization of funds.
The Indian money market suffered from the major defect of irrational interest rate structure for a long period of time. Recently, the Reserve Bank of India introduced the standardization of interest rates for rationalization, which made some improvement in this regard. But still the present system of administration is suffering from some defects, such as, too many concessional rates of interest, comparatively low yield on government securities and improper lending and deposit rates fixed by the commercial banks.
The Indian money market suffers also from inadequate banking facilities. Rural banking network in India is still underdeveloped. Due to this drawback, a huge amount of small savings is not mobilized which needs to be mobilized for its productive uses through the expansion of banking facilities.#p#分页标题#e#
Indian money market faces seasonal stringency of funds. It is because of the reason that India being an agricultural country has to face huge demand for funds so as to meet the increased requirement of agricultural operations. Due to the reason, the interest rates also increase. But in the slack season, the demand for funds fall down and ultimately the interest rates also fall down. These wide fluctuations in interest rates are not favorable to developmental activities of the country.
India Market Growth
India market growth has experienced good times in the recent years which have prospered the economy of the country to a great extent. Since the liberalization of the market since the 1990s, there has been a high growth in the market and various industrial sectors.
Over the recent years, there has been a considerable growth in Indian market which has led to high Gross Domestic Product (GDP) with an average annual growth of around 6 to 7%.
In the financial year 2008-09, the factor cost of the GDP was around 6.7 %. To keep up this favorable growth, the government is also taking steps. www.ukthesis.org.The present Indian Prime Minister, Dr Manmohan Singh, has stressed that the government is taking various steps to make the yearly economic growth go up to 9 %. In fact, the World Bank too has projected that the market growth rate of India will reach around 8 % in the year 2010 which may even overtake China.
There are a number of factors that have paved path for India market growth. After the economic liberalization policies were undertaken in the 1990s, the economy of the country has been steadily rising which has led to more demands and supply circles
This has introduced diverse market sectors and industries in the country which have led to a competitive consumer market. Today, India ranks among the 12th largest economy in the world in terms of market exchange while it is the 4th largest economy in terms of the purchasing power parity.
There has a very positive growth in Indian market in the industrial sector. As per the reports of the Central Statistical Organization, the industrial sector had an estimated yearly growth of around 6.8 % and is expected to grow more.
The development in the technologies has opened up allied sectors which have also led to growth in the quality and quantity of exports. Among the well known markets of the Asia-Pacific region, the share of private domestic consumption in India was around 57 % of the Gross Domestic Product of the country in the year 2008.
Foreign investment market in India
Due to high demand of different product and the perfect competition market, more and more foreign companies are investing and entering the Indian market. According to recent reports, the amount of the foreign institutional investments (FIIs) has touched around US$ 10 billion.
This is a real boost to the market as well as the stock exchange of India. There was around an 85.1 % growth in the foreign direct investments (FDI) market which rose from around US$ 25.1 billion in the year 2007 to US$ 46.5 billion in the year 2008.#p#分页标题#e#
RECENT DEVELOPMENTS
� Corporation and Demutualization of Stock Exchanges
Out of the 23 erstwhile stock exchanges, 18 have since been corporatized and demutualised in 2007-08. One stock exchange, i.e. Hyderabad Stock Exchange, failed to demutualise by the due date and has therefore been de-recognized. Saurashtra Kutch Stock exchange, Mangalore Stock exchange and Magadh Stock exchange have been de-recognized for various irregularities/non compliances. As regards Coimbatore Stock Exchange which had sought voluntary withdrawal of recognition, the matter is sub-judice.
� Corporate Bond Markets
The Government had set up a High-Level Expert Committee on Corporate Bonds and Securitisation (Patil Committee) to look in to legal, regulatory, tax and market design issues in the development of the corporate bond market. The Committee submitted its report to the Government in December, 2005. The Budget of 2006-07 announced that the Government has accepted the recommendations of the Report and that steps would be taken to create a single, unified exchange-traded market for corporate bonds. The measures already taken in respect of implementation of the recommendations of the Patil Committee include:
The Securities Contracts (Regulation) Act, 1956 has been amended to include securitized instruments within the ambit of "securities".
The RBI Act has been amended to empower RBI to develop and regulate market for Repos in corporate bonds.
The limit of FII Investment in corporate debt has been increased from US$ 0.5 billion to US$ 1.5 billion.
The trade reporting platform for corporate bonds has been operationalised since 1st January, 2007.
The trading platforms for corporate bonds at the major exchanges have been operationalised from July 1, 2007.
PAN as the sole identification number
PAN has been made the sole identification number for all transactions in securities market. This is an investor friendly measure as he does not have to maintain different identification numbers for different kinds of transactions/different segments in financial markets. Further, identification through PAN would help the authorities in enforcement action.
� Securities Contracts (Regulation) Amendment Act, 2007
The Securities Contracts Regulation Act, 1956 has been amended to include securitization instruments under the definition of "securities" and provide for disclosure based regulation for issue of the securitized instruments and the procedure thereof. This has been done keeping in view that there is considerable potential in the securities market for the certificates or instruments under securitization transactions. The development of the securitized debt market is critical for meeting the humungous requirements of the infrastructure sector, particularly housing sector, in the country. Replication of the securities markets framework for these instruments would facilitate trading on stock exchanges and in turn help development of the market in terms of depth and liquidity.#p#分页标题#e#
� Equity Finance for the Small and Medium Enterprises (SMEs)
SMEs in India have traditionally relied on debt financing from banks and non-bank financial institutions. In order to develop the equity market for SMEs, SEBI has decided to create a separate exchange for the SMEs. It has decided that, to begin with there should be a single exchange for the SME sector for around 2-3 years to enable successful development of the market for SMEs.
� IPO grading
SEBI has made it compulsory for companies coming out with IPOs of equity shares to get their IPOs graded by at least one credit rating agency registered with SEBI from May 1, 2007. This measure is intended to provide the investor with an informed and objective opinion expressed by a professional rating agency after analyzing factors like business and financial prospects, management quality and corporate governance practices etc. Till January 2008 45 IPOs have been graded by credit rating agencies.
� Permitting Indian mutual funds to invest in overseas securities
SEBI has fixed the aggregate ceiling for overseas investments at US $ 5 billion. Within the overall limit of US $ 5 billion, mutual funds can make overseas investments subject to a maximum of US $300 million per mutual fund. Further different regulations that allow individuals and Indian mutual funds to invest in overseas securities by permitting individuals to invest through Indian mutual funds have been converged.
� Short selling
In pursuance to budget announcement, SEBI has issued a circular on 20th December, 2007 to permit short selling by institutional investors and securities lending and borrowing to support settlement of short sales. The scheme is likely to be operationalised shortly.
� New derivative products
Mini derivative contract on Index (Sensex and Nifty) having a minimum contract size of Rs. 1 lakh have been introduced. It has been found that globally overall market liquidity and participation generally increases with introduction of mini contracts. Since January 11, 2008 SEBI has also allowed trading on options contracts on indices and stocks with a longer life/tenure of up to five years. These contracts are expected to provide liquidity at the longer end of the market. Since January 15, 2008 SEBI has permitted introduction ofvolatility index on futures and options contracts. An openly available and quoted measure of market
� Investment options for Navaratna and Miniratna Public Sector Enterprises
The Navaratna and Miniratna Public Sector Enterprises have been allowed to invest in public sector mutual funds subject to the condition that they would not invest more than 30% of the available surplus funds in equity mutual funds and the Boards of PSEs would decide the guidelines, procedures and management control systems for such investment in consultation with their administrative Ministries.#p#分页标题#e#
� Investor Protection and Education Fund (IPEF)
SEBI has set up the Investor Protection and Education Fund (IPEF) with the purpose of investor education and related activities. SEBI has contributed a sum of Rs.10 crores toward the initial corpus of the IPEF from the SEBI General Fund. In addition following amounts will also be credited to the IPEF namely: (i) Grants and donations given to IPEF by the Central Government, State Governments or any institution approved by SEBI for the purpose of the IPEF;(ii) Interest or other income received out of the investments made from the IPEF; and (iii) Such other amount that SEBI may specify in the interests of the investors.
POLICY MEASURES AND INITIATIVES
A number of initiatives have been undertaken by the Government, from time to time, so as to provide financial and regulatory reforms in the primary and secondary market segments of the capital market. These measures broadly aim to sustain the confidence of investors (both domestic and foreign) in the country's capital market.
The policy initiatives that have been undertaken in the primary market during 2006-07 include:-
SEBI has notified the disclosures and other related requirements for companies desirous of issuing Indian depository receipts in India. It has been mandated that: - (i) the issuer must be listed in its home country; (ii) it must not have been barred by any regulatory body; and (iii) it should have a good track record of compliance of securities market regulations.
As a condition of continuous listing, listed companies have to maintain a minimum level of public shareholding at 25 per cent of the total shares issued. The exemptions include:- (i) companies which are required to maintain more than 10 per cent, but less than 25 per cent in accordance with the Securities Contracts (Regulation) Rules, 1957; and (ii) companies that have two crores or more of listed shares and Rs. 1,000 crores or more of market capitalization.
SEBI has specified that shareholding pattern will be indicated by listed companies under three categories, namely, 'shares held by promoter and promoter group'; 'shares held by public' and 'shares held by custodians and against which depository receipts have been issued'.
In accordance with the guidelines issued by SEBI, the issuers are required to state on the cover page of the offer document whether they have opted for an IPO (Initial Public Offering) grading from the rating agencies. In case the issuers opt for a grading, they are required to disclose the grades including the unaccepted grades in the prospectus.
SEBI has facilitated a quick and cost effective method of raising funds, termed as 'Qualified Institutional Placement (QIP)' from the Indian securities market by way of private placement of securities or convertible bonds with the Qualified Institutional Buyers.#p#分页标题#e#
In order to regulate pre-issue publicity by companies which are planning to make an issue of securities, SEBI has amended the 'Disclosure and Investor Protection Guidelines' to introduce 'Restrictions on Pre-issue Publicity'. The restrictions, inter alia, require an issuer company to ensure that its publicity is consistent with its past practices, does not contain projections/ estimates/ any information extraneous to the offer document filed with SEBI.
1992年,在印度的主要的证券交易所——孟买证交所(BSE),第一次见证了Harshad Mehta (Mehta)的重大骗局。
结果,印度政府(GoI)建立了一个单独立法的“1992年印度证券交易委员会法案”和法定权力。自那以后,印度证券交易委员会引入了股票市场的改革。这些改革极大地改变了印度股市。印度证券交易委员会介绍在线股票交易取代了古老的纸质交易,从而给交易系统中带来了更多的透明度。
尽管多年来印度证券交易委员会一直促进资本市场的改革且监督股票市场的发展进程,但是分析师认为它在阻止股市诈骗上已经是失败的了。随后十年的Mehta骗局和其他几个骗局曝光,不禁让人们怀疑印度证券交易委员会作为监管机构的效率。
Protecting the rights of small investors
INTRODUCTION
On April 12, 1988, the Securities and Exchange Board of India (SEBI) was established with a dual objective of protecting the rights of small investors and regulating and developing the stock markets in India.
In 1992, the Bombay Stock Exchange (BSE), the leading stock exchange in India, witnessed the first major scam masterminded by Harshad Mehta (Mehta).
As a result, the Government of India (GoI) brought in a separate legislation by the name of 'SEBI Act 1992' and statutory powers to it. Since then, SEBI had introduced several stock market reforms. These reforms significantly transformed the face of Indian stock markets. SEBI introduced on-line trading and demat of shares which did away with the age-old paper-based trading, thus bringing more transparency into the trading system.
In spite of SEBI's capital market reforms and increasing regulatory powers over the years, analysts felt that it had failed miserably in stopping stock market scams. In the ten years after the Mehta scam, several scams came to light, casting doubt on the efficiency of SEBI as a regulatory body
SEBI AS A REGULATOR
The Indian economy was liberalized in 1991. In order to achieve the full potential of liberalization and enable the Indian stock market to attract huge investments from foreign institutional investors (FIIs), it was necessary to introduce a series of stock market reforms.
SEBI's efforts to boost investments in the capital markets faced a severe setback in 1992 when Mehta's illegal activities led to a stock market scam. Mehta had managed to obtain huge funds from top banks and financial institutions in India, including State Bank of India, Stanchart, National Housing Bank, Citibank and ANZ Grindlays, to manipulate stock prices, which rose significantly.#p#分页标题#e#
Between September 1991 and April 1992, the BSE index went up by 143%. However, when the prices crashed, several small investors lost their hard-earned money. The amount involved in this crisis was approximately Rs.54 bn. SEBI's inefficiency in regulating the markets was brought to light for the first time.
FINANCIAL MARKET OVERVIEW
Financial Market Overview can be defined as the overall picture of a financial market. A financial market is basically a market for financial products which puts all its sellers in one place so that it can facilitate its trade and the subsequent raising of capital.
Financial markets can consist of the capital markets or the Stock Exchange trading in stocks, bonds and warrants, the Money markets, the Derivatives markets providing instruments for the management of financial risk as well as the Futures and Insurance markets.
The financial market overview can provide certain key information about the financial markets in general such as the stock market quotes, business news and financial news such as mergers and acquisitions affecting the financial market scenario.
Financial System
Financial Markets
A Financial Market can be defined as the market in which financial assets are created or transferred. Financial Assets or Financial Instruments represents a claim to the payment of a sum of money sometime in the future and /or periodic payment in the form of interest or dividend.
Money Market- The money market ifs a wholesale debt market for low-risk, highly-liquid, short-term instrument. Funds are available in this market for periods ranging from a single day up to a year. This market is dominated mostly by government, banks and financial institutions.
Capital Market -The capital market is designed to finance the long-term investments. The transactions taking place in this market will be for periods over a year.
Forex Market - The Forex market deals with the multicurrency requirements, which are met by the exchange of currencies. Depending on the exchange rate that is applicable, the transfer of funds takes place in this market. This is one of the most developed and integrated market across the globe.
CAPITAL MARKET
A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets (e.g., the money market). The capital market includes the stock market (equity securities) and the bond market (debt).
Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere.#p#分页标题#e#
Capital market is one of the most important segments of the Indian financial system. It is the market available to the companies for meeting their requirements of the long-term funds. It refers to all the facilities and the institutional arrangements for borrowing and lending funds.
The Indian capital market is broadly divided into the gilt-edged market and the industrial securities market.
The gilt-edged market refers to the market for Government and semi-government securities, backed by the Reserve Bank of India (RBI). Government securities are trade able debt instruments issued by the Government for meeting its financial requirements. The term gilt-edged means 'of the best quality'. This is because the Government securities do not suffer from risk of default and are highly liquid.
The industrial securities market refers to the market which deals in equities and debentures of the corporate. It is further divided into primary market and secondary market.
Primary market (new issue market):- deals with 'new securities', that is, securities which were not previously available and are offered to the investing public for the first time. It is the market for raising fresh capital in the form of shares and debentures. The new offerings by the companies are made either as an initial public offering (IPO) or rights issue.
Secondary market/ stock market (old issues market or stock exchange):- is the market for buying and selling securities of the existing companies. Under this, securities are traded after being initially offered to the public in the primary market and/or listed on the stock exchange.
Role of Capital Markets
Mobilization of Savings & acceleration of Capital Formation
Promotion of Industrial Growth
Raising of long term Capital
Ready & Continuous Markets
Proper Channelization of Funds
Provision of a variety of Services
Functions of a Capital Market
Disseminate information efficiently
Enable quick valuation of financial instruments -both equity and debt
Provide insurance against market risk or price risk
Enable wider participation
Provide operational efficiency through
simplified transaction procedure
lowering settlement timings and
lowering transaction costs
SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)
Sebi - Introduction
In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992
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The basic objectives of the Board were identified as:
to protect the interests of investors in securities
to promote the development of Securities Market
to regulate the securities market and
for matters connected therewith or incidental thereto
Since its inception SEBI has been working targeting the securities and is attending to the fulfillment of its objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the market.
SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating agencies, underwriters and others.
It has framed bye-laws, risk identification and risk management systems for Clearing houses of stock exchanges, surveillance system etc. which has made dealing in securities both safe and transparent to the end investor.
However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment to include "derivatives" in the definition of securities to enable SEBI to introduce trading in derivatives. The necessary amendment was then carried out by the Government in 1999. The Securities Laws (Amendment) Bill, 1999 was introduced. In December 1999 the new framework was approved.
Derivatives have been accorded the status of ——Securities'. The ban imposed on trading in derivatives in 1969 under a notification issued by the Central Government was revoked. Thereafter SEBI formulated the necessary regulations/bye-laws and intimated the Stock Exchanges in the year 2000. The derivative trading started in India at NSE in 2000 and BSE started trading in the year 2001.
Functions of Sebi
Regulating the business in stock exchanges and any other securities markets
Registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets in any manner
Registering and regulating the working of [venture capital funds and collective investment schemes], including mutual funds;
Promoting and regulating self-regulatory organizations;
Prohibiting fraudulent and unfair trade practices relating to securities markets;
Promoting investors' education and training of intermediaries of securities markets;
Prohibiting insider trading in securities;#p#分页标题#e#
Regulating substantial acquisition of shares and take-over of companies;
Calling for information from, undertaking inspection, conducting inquiries and audits of the [stock exchanges, mutual funds, other persons associated with the securities market] intermediaries and self- regulatory organizations in the securities market
FINANCIAL INSTRUMENTS
Capital market instruments
The capital market generally consists of the following long term period i.e., more than one year period, financial instruments;
In the equity segment Equity shares, preference shares, convertible preference shares, non-convertible preference shares etc and in the debt segment debentures, zero coupon bonds, deep discount bonds etc.
Equity shares
Share or stock is also known as an equity share as well. The equity share basically represents ownership in the company. When a company needs capital or money to operate, it generates the required funds by selling ownership in the company. This means that the company issues equity shares for a price and these shares represent ownership in the company for the one who purchases the shares. These shares are an ownership in the company and give the owner the right to have a share in the profits of the firm.
Preference shares
Preference Shares means shares which fulfill the following 2 conditions. Therefore, a share which is does not fulfill both these conditions is an equity share.
It carries Preferential rights in respect of Dividend at fixed amount or at fixed rate i.e. dividend payable is payable on fixed figure or percent and this dividend must paid before the holders of the equity shares can be paid dividend.
It also carries preferential right in regard to payment of capital on winding up or otherwise. It means the amount paid on preference share must be paid back to preference shareholders before anything in paid to the equity shareholders. In other words, preference share capital has priority both in repayment of dividend as well as capital.
Types of Preference Shares
1. Cumulative or Non-cumulative:
A non-cumulative or simple preference shares gives right to fixed percentage dividend of profit of each year.
Cumulative preference shares however give the right to the preference shareholders to demand the unpaid dividend in any year during the subsequent year or years when the profits are available for distribution
2. Redeemable and Non- Redeemable:
Redeemable Preference shares are preference shares which have to be repaid by the company after the term of which for which the preference shares have been issued.
Irredeemable Preference shares means preference shares need not repaid by the company except on winding up of the company.#p#分页标题#e#
Debentures
Atype of debt instrument that is not secured by physical asset or collateral.Debentures are backed only by the generalcreditworthinessandreputation of the issuer.Both corporations and governments frequently issue this type of bond in order to secure capital.Like other types of bonds, debentures are documented in an indenture.
Debentures have no collateral.Bond buyers generallypurchase debentures based onthe belief that the bond issuer is unlikely to default on the repayment.An example of a governmentdebenture would be any government-issuedTreasury bond (T-bond) or Treasury bill (T-bill). T-bonds and T-billsare generally considered riskfree because governments, at worst,canprint off more money or raise taxes to paythese types of debts.
Zero coupon bonds
Debt security that doesn't pay interest (a coupon) but is traded at a deep discount, renderingprofit at maturity whenthe bondis redeemed for its full face value.
Also known as an "accrual bond"
Some zero-coupon bondsare issued as such,while others are bonds that have beenstrippedof theircoupons by a financial institution and then repackaged as zero-coupon bonds.Because they offer the entire payment at maturity,zero-coupon bondstend to fluctuate in price much more than coupon bonds.
Deep discount bonds
A bond that sells at a significant discount from par value.
A bond that is selling at a discount from par value and has a coupon rate significantly less than the prevailing rates of fixed-income securities with a similar risk profile.
Typically, a deep-discount bond will have a market price of 20% or more below its face value. These bonds are perceived to be riskier than similar bonds and are thus priced accordingly.
These low-coupon bonds are typically long term and issued with call provisions. Investors are attracted to these discounted bonds because of their high return or minimal chance of being called before maturity.
NEW INSTRUMENTS OF CAPITAL MARKET
Pure Discount Instrument
A type of security that pays no income until maturity; upon expiration, the holder receives the face value of the instrument. The instrument is originally sold for less than its face value (at a discount). Pure discount instruments can take the form of zero-coupon bonds or Treasury bills.
Hybrid Instruments
Hybrid instruments have both the features of equity and debenture. This kind of instruments is called as hybrid instruments. Examples are convertible debentures, warrants etc.
Derivatives
Derivatives are generally used as an instrument to hedgerisk, but can also be used forspeculative purposes. For example, a European investor purchasing shares of an American companyoffof an American exchange (using U.S. dollars to do so) would be exposed to exchange-rate risk while holding that stock. To hedge this risk, the investor could purchase currency futures to lock in a specified exchange rate forthe future stock sale and currency conversion back into Euros.#p#分页标题#e#
MONEY MARKET INSTRUMENTS
Call /Notice-Money Market
Call/Notice money is the money borrowed or lent on demand for a very short period. When money is borrowed or lent for a day, it is known as Call (Overnight) Money. When money is borrowed or lent for more than a day and up to 14 days, it is "Notice Money". No collateral security is required to cover these transactions.
Inter-Bank Term Money
Inter-bank market for deposits of maturity beyond 14 days is referred to as the term money market. The entry restrictions are the same as those for Call/Notice Money except that, as per existing regulations, the specified entities are not allowed to lend beyond 14 days.
Treasury Bills.
Treasury Bills are short term (up to one year) borrowing instruments of the union government. It is an IOU of the Government. It is a promise by the Government to pay a stated sum after expiry of the stated period from the date of issue (14/91/182/364 days i.e. less than one year). They are issued at a discount to the face value, and on maturity the face value is paid to the holder. The rate of discount and the corresponding issue price are determined at each auction.
Certificate of Deposits
Certificates of Deposit (CDs) is a negotiable money market instrument issued in dematerialized form or as a Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period. Guidelines for issue of CDs are presently governed by various directives issued by the Reserve Bank of India, as amended from time to time.
Commercial Paper
CP is a note in evidence of the debt obligation of the issuer. On issuing commercial paper the debt obligation is transformed into an instrument. CP is thus an unsecured promissory note privately placed with investors at a discount rate to face value determined by market forces.
PRIMARY MARKET
The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus.
Features of primary markets are:
This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).
In a primary issue, the securities are issued by the company directly to investors.
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The company receives the money and issues new security certificates to the investors.
Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.
The primary market performs the crucial function of facilitating capital formation in the economy.
The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public."
The financial assets sold can only be redeemed by the original holder.
Methods of issuing securities in the primary market are:
Initial public offering;
Rights issue (for existing companies);
Preferential issue.
SECONDARY MARKET
The secondary market, also known as the aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold. The term "secondary market" is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market
The secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of publicly traded companies.
Functions of secondary market
Secondary marketing is vital to an efficient and modern capital market. In the secondary market, securities are sold by and transferred from one investor or speculator to another. It is therefore important that the secondary market be highly liquid.
As a general rule, the greater the number of investors that participate in a given marketplace, and the greater the centralization of that marketplace, the more liquid the market.
Fundamentally, secondary markets mesh the investor's preference for liquidity (i.e., the investor's desire not to tie up his or her money for a long period of time, in case the investor needs it to deal with unforeseen circumstances) with the capital user's preference to be able to use the capital for an extended period of time.
Accurate share price allocates scarce capital more efficiently when new projects are financed through a new primary market offering, but accuracy may also matters in the secondary market because:
price accuracy can reduce the agency costs of management, and make hostile takeover a less risky proposition and thus move capital into the hands of better managers, and#p#分页标题#e#
Accurate share price aids the efficient allocation of debt finance whether debt offerings or institutional borrowing.
MUTUAL FUNDS
A mutual fund is a managed group of owned securities of several corporations. These corporations receive dividends on the shares that they hold and realize capital gains or losses on their securities traded. Investors purchase shares in the mutual fundas if it was an individual security. After paying operating costs, the earnings (dividends, capital gains or losses) of the mutual fund are distributed to the investors, in proportion to the amount of money invested.
A mutual fund may be either an open-end or a closed-end fund. An open-end mutual fund does not have a set number of shares; it may be considered as a fluid capital stock. The number of shares changes as investors buys or sell their shares.
Investors are able to buy and sell their shares of the company at any time for a market price. However the open-end market price is influenced greatly by the fund managers. On the other hand, closed-end mutual fund has a fixed number of shares and the value of the shares fluctuates with the market. But with close-end funds, the fund manager has less influence because the price of the underlining owned securities has greater influence.
Types of mutual funds
Most funds have a particular strategy they focus on when investing. For instance, some invest only in Blue Chip companies that are more established and are relatively low risk. On the other hand, some focus on high-risk startup companies that have the potential for double and triple digit growth.Finding a mutual fundthat fits your investment criteria and style is important. Types of mutual funds are:
Value stocks
Stocks from firms with relative low Price to Earning (P/E) Ratio usually pay good dividends. The investor is looking for income rather than capital gains.
Growth stock
Stocks from firms with higher low Price to Earning (P/E) Ratio usually pay small dividends. The investor is looking for capital gains rather than income.
Based on company size, large, mid, and small cap
Stocks from firms with various asset levels such as over $2 Billion for large; in between $2 and $1 Billion for mid and below $1 Billion for small.
Income stock
The investor is looking for incomes which usually come from dividends or interest. These stocks are from firms which pay relative high dividends. This fund may include bonds which pay high dividends. This fund is much like the value stock fund, but accepts a little more risk and is not limited to stocks.
Index funds
The securities in this fund are the same as in an Index fund such as the Dow Jones Average or Standard and Poor's. The number and ratios or securities are maintained by the fund manager to mimic the Index fund it is following.#p#分页标题#e#
The SEBI (Mutual Funds) Regulations, 1996
The revised regulations embodied far reaching changes in the regulation and functioning of mutual funds. The revised regulations provide for
enhanced level of investor protection
empowerment of investors
stringent disclosure norms in the offer documents, so that investors are better informed, better advised, better aware of risks and rewards
standardization of norms for valuation of assets, computation of Net Asset Values (NAVs) of schemes of mutual funds and accounting standards and policies
complete freedom to asset management companies to structure schemes in accordance with investor preferences
removal of quantitative restrictions on investment by mutual funds and replacement by prudential supervision
replacement of vetting of offer documents by filing
guaranteed return schemes by mutual funds permitted provided returns including capital were guaranteed
indication of expected returns based on hypothetical portfolio permitted
better governance of mutual funds through higher responsibilities and empowerment of trustees as front-line regulators of mutual funds
closer scrutiny through off site and onsite inspections
code of ethics for asset management companies
IMPACT
The impact of the new regulations was immediately felt. Asset management companies framed several schemes which made use of the freedom provided to them by the new regulations. Not only did the number of schemes filed with SEBI increase significantly in a short period of time, but also there was greater variety in the investment products offered. There was also a significant improvement in disclosures in the offer documents.
The new regulations have brought into greater focus the responsibilities of trustees of mutual funds who are uniquely positioned to promote the interests of the unit holders and to ensure that mutual funds are managed responsibly and ethically. SEBI is using its interface with AMFI to assess the impact of the new regulations on the working of mutual funds and to examine further ways of improving the performance of mutual funds so as to restore investor confidence in them.
NON-BANKING FINANCE COMPANIES
A non-banking financial company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business, but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property.#p#分页标题#e#
A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme of arrangement or any other manner, or lending in any manner is also a non-banking financial company
Amendments to NBFC Regulations
There are a number of Government NBFCs which fall within the ambit of RBI Regulations. The Government Department or the Ministry or the Bureau of Public Enterprises to which such companies are attached, are expected to prescribe the norms for their operations on healthy lines and monitor their financial health.
The NBFCs have been voicing their problems in securing desired lots of Government securities in small towns and localities in the country. In order to increase operational ease in maintenance of liquid assets
The NBFCs have been permitted to maintain up to 5 percent of the public deposits in the form of term deposits with scheduled commercial banks out of present requirement of 15 percent of public deposits to be invested in liquid assets.
It may also be reiterated that the NBFCs holding public deposits should scrupulously furnish the liquid asset return on quarterly basis and the delay in submission or non-submission thereof would be viewed seriously
NBFCs changing their name, more particularly to add InfoTech tag with a view to taking advantage of the capital market sentiments, which may not only jeopardize the interest of the depositors, but also of the investors. Such a change in the name and the business plan of the company may also result into the principal business of the NBFC becoming non-financial, thereby affecting its eligibility for grant and holding of Certificate of Registration under Section 45-IA (4) of the RBI Act.
NBFCs vanishing after mobilization of capital, deposits, etc. from public, raising grave supervisory concerns. Since the present regulatory framework is aimed at ensuring that registration is granted only to serious and bonfire players in the NBFC sector, it has been decided to place on record details of Permanent Account Number issued by Income Tax Authorities, of each of the directors of all NBFCs whether registered or whose applications for Certificate of Registration are pending with the Bank.
DEPOSITORIES
A depository is an entity where the securities of an investor are held in electronic form. Depositories help in the settlement of the dematerialized securities. Each custodian /clearing member is required to maintain a clearing pool account with the depository. He is required to make available the required securities in the designated account on settlement day.
The depository runs an electronic file to transfer the securities from accounts of the custodians/clearing member to that of Clearing Corporation. As per the schedule of allocation of securities determined by the Clearing Corporation, the depositories transfer the securities on the payout day from the account of the Clearing Corporation to those of members/custodians.#p#分页标题#e#
Every investor who wants to hold securities in dematerialized form must open an account with a depository participant (DP) of his choice. Usually this is done byyour broker on behalfof you. Depository Participants (DPs) hold accounts with depositories.
Just as one can hold funds in a bank account and transfer funds across accounts without actually handling cash; one can hold securities in a depository account and transfer securities across depository accounts without actually handling share certificates.
There are two main depositories in India.
National Securities Depository Ltd (NSDL)
Central Depository Services Ltd (CDSL)
NSDL is the first and largest depository in India. It established in August 1996. The Basic functions ofa depository are
Maintaining dematerialized accounts
Transfer of shares across DP accounts and iner-depository transfers
Crediting Accounts in case of Corporate Actions like Dividend issue, Rights issue etc.
Some other value added services like managing intermediary accounts for SLB (Stock Lending and Borrowing), IPOs and National Savings Certificates etc.
INSTRUMENTS ISSUED OUTSIDE INDIA
FCCBs
A type of convertible bondissued in a currency different than the issuer's domestic currency.In other words, the money being raised by the issuing companyis in the form of aforeigncurrency. A convertible bond is a mix between a debt and equity instrument. It acts likea bond by making regular coupon and principalpayments, but these bonds also give the bondholder the option to convert the bond into stock.
These types of bonds are attractive to both investors and issuers. The investors receive the safety of guaranteed payments on the bond and arealso able to take advantage of any large priceappreciation in the company's stock. (Bondholders take advantage of thisappreciation by means warrants attached to the bonds, which are activated when the price of the stock reaches a certain point.)Due to theequity sideof the bond, which adds value, the couponpayments on the bond are lower for the company,therebyreducingits debt-financing costs.
GDR
A Global Depository Receipt or Global Depositary Receipt (GDR) is a certificate issued by a depository bank, which purchases shares of foreign companies and deposits it on the account. GDRs represent ownership of an underlying number of shares.
Global Depository Receipts facilitate trade of shares, and are commonly used to invest in companies from developing or emerging markets.
Prices of GLOBAL DEPOSITARY RECEIPT are often close to values of related shares, but they are traded and settled independently of the underlying share.
Several international banks issue GDRs, such as JPMorgan Chase, Citigroup, Deutsche Bank, Bank of New York. GDRs are often listed in the Luxembourg Stock Exchange and in the London Stock Exchange, where they are traded on the International Order Book (IOB). Normally 1 GDR = 10 Shares, but not always.#p#分页标题#e#
American Depositary Receipt - ADR
A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) ina foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help to reduce administration and duty costs that would otherwise be levied on each transaction.
This is an excellent way to buy shares in a foreign company whilerealizing any dividends and capital gains in U.S.dollars. However, ADRs do not eliminate the currency and economic risks for the underlying shares in another country.For example, dividend payments in Euros would be converted to U.S. dollars, net of conversion expenses and foreign taxes and in accordancewith thedeposit agreement.ADRs are listed on the NYSE, AMEX or NASDAQ.
REGULATION OF MONEY MARKET
Characteristics of Indian money market:
The Indian money market suffers from a number of defects; the prominent of these are as follows;
The Indian money market is not integrated one. It is divided in two sectors the financial operations of both the sectors are independent to each other. The activities of both the sectors are also independent and have no impact on each other. Therefore, it is very difficult to establish a national money market.
The constituents of the money market are competing each other rather the cooperating each other. The Reserve Bank of India has no control over indigenous bankers. Further, the monetary policy of the Reserve Bank of India has not been found sufficiently effective to maintain adequate integration among the various constituents of the Indian Money market.
The Indian money market also suffers from shortage of funds. The demand for funds is much more than the supply of funds. There are so many reasons for the shortage of funds such as, poverty, black money, parallel economy, inadequate banking facilities.
The development of banking facilities in the rural sector in the recent past and recently the lowering of cash reserve ratio by Reserve Bank of India has improved the mobilization of funds.
The Indian money market suffered from the major defect of irrational interest rate structure for a long period of time. Recently, the Reserve Bank of India introduced the standardization of interest rates for rationalization, which made some improvement in this regard. But still the present system of administration is suffering from some defects, such as, too many concessional rates of interest, comparatively low yield on government securities and improper lending and deposit rates fixed by the commercial banks.
The Indian money market suffers also from inadequate banking facilities. Rural banking network in India is still underdeveloped. Due to this drawback, a huge amount of small savings is not mobilized which needs to be mobilized for its productive uses through the expansion of banking facilities.#p#分页标题#e#
Indian money market faces seasonal stringency of funds. It is because of the reason that India being an agricultural country has to face huge demand for funds so as to meet the increased requirement of agricultural operations. Due to the reason, the interest rates also increase. But in the slack season, the demand for funds fall down and ultimately the interest rates also fall down. These wide fluctuations in interest rates are not favorable to developmental activities of the country.
India Market Growth
India market growth has experienced good times in the recent years which have prospered the economy of the country to a great extent. Since the liberalization of the market since the 1990s, there has been a high growth in the market and various industrial sectors.
Over the recent years, there has been a considerable growth in Indian market which has led to high Gross Domestic Product (GDP) with an average annual growth of around 6 to 7%.
In the financial year 2008-09, the factor cost of the GDP was around 6.7 %. To keep up this favorable growth, the government is also taking steps. www.ukthesis.org.The present Indian Prime Minister, Dr Manmohan Singh, has stressed that the government is taking various steps to make the yearly economic growth go up to 9 %. In fact, the World Bank too has projected that the market growth rate of India will reach around 8 % in the year 2010 which may even overtake China.
There are a number of factors that have paved path for India market growth. After the economic liberalization policies were undertaken in the 1990s, the economy of the country has been steadily rising which has led to more demands and supply circles
This has introduced diverse market sectors and industries in the country which have led to a competitive consumer market. Today, India ranks among the 12th largest economy in the world in terms of market exchange while it is the 4th largest economy in terms of the purchasing power parity.
There has a very positive growth in Indian market in the industrial sector. As per the reports of the Central Statistical Organization, the industrial sector had an estimated yearly growth of around 6.8 % and is expected to grow more.
The development in the technologies has opened up allied sectors which have also led to growth in the quality and quantity of exports. Among the well known markets of the Asia-Pacific region, the share of private domestic consumption in India was around 57 % of the Gross Domestic Product of the country in the year 2008.
Foreign investment market in India
Due to high demand of different product and the perfect competition market, more and more foreign companies are investing and entering the Indian market. According to recent reports, the amount of the foreign institutional investments (FIIs) has touched around US$ 10 billion.
This is a real boost to the market as well as the stock exchange of India. There was around an 85.1 % growth in the foreign direct investments (FDI) market which rose from around US$ 25.1 billion in the year 2007 to US$ 46.5 billion in the year 2008.#p#分页标题#e#
RECENT DEVELOPMENTS
� Corporation and Demutualization of Stock Exchanges
Out of the 23 erstwhile stock exchanges, 18 have since been corporatized and demutualised in 2007-08. One stock exchange, i.e. Hyderabad Stock Exchange, failed to demutualise by the due date and has therefore been de-recognized. Saurashtra Kutch Stock exchange, Mangalore Stock exchange and Magadh Stock exchange have been de-recognized for various irregularities/non compliances. As regards Coimbatore Stock Exchange which had sought voluntary withdrawal of recognition, the matter is sub-judice.
� Corporate Bond Markets
The Government had set up a High-Level Expert Committee on Corporate Bonds and Securitisation (Patil Committee) to look in to legal, regulatory, tax and market design issues in the development of the corporate bond market. The Committee submitted its report to the Government in December, 2005. The Budget of 2006-07 announced that the Government has accepted the recommendations of the Report and that steps would be taken to create a single, unified exchange-traded market for corporate bonds. The measures already taken in respect of implementation of the recommendations of the Patil Committee include:
The Securities Contracts (Regulation) Act, 1956 has been amended to include securitized instruments within the ambit of "securities".
The RBI Act has been amended to empower RBI to develop and regulate market for Repos in corporate bonds.
The limit of FII Investment in corporate debt has been increased from US$ 0.5 billion to US$ 1.5 billion.
The trade reporting platform for corporate bonds has been operationalised since 1st January, 2007.
The trading platforms for corporate bonds at the major exchanges have been operationalised from July 1, 2007.
PAN as the sole identification number
PAN has been made the sole identification number for all transactions in securities market. This is an investor friendly measure as he does not have to maintain different identification numbers for different kinds of transactions/different segments in financial markets. Further, identification through PAN would help the authorities in enforcement action.
� Securities Contracts (Regulation) Amendment Act, 2007
The Securities Contracts Regulation Act, 1956 has been amended to include securitization instruments under the definition of "securities" and provide for disclosure based regulation for issue of the securitized instruments and the procedure thereof. This has been done keeping in view that there is considerable potential in the securities market for the certificates or instruments under securitization transactions. The development of the securitized debt market is critical for meeting the humungous requirements of the infrastructure sector, particularly housing sector, in the country. Replication of the securities markets framework for these instruments would facilitate trading on stock exchanges and in turn help development of the market in terms of depth and liquidity.#p#分页标题#e#
� Equity Finance for the Small and Medium Enterprises (SMEs)
SMEs in India have traditionally relied on debt financing from banks and non-bank financial institutions. In order to develop the equity market for SMEs, SEBI has decided to create a separate exchange for the SMEs. It has decided that, to begin with there should be a single exchange for the SME sector for around 2-3 years to enable successful development of the market for SMEs.
� IPO grading
SEBI has made it compulsory for companies coming out with IPOs of equity shares to get their IPOs graded by at least one credit rating agency registered with SEBI from May 1, 2007. This measure is intended to provide the investor with an informed and objective opinion expressed by a professional rating agency after analyzing factors like business and financial prospects, management quality and corporate governance practices etc. Till January 2008 45 IPOs have been graded by credit rating agencies.
� Permitting Indian mutual funds to invest in overseas securities
SEBI has fixed the aggregate ceiling for overseas investments at US $ 5 billion. Within the overall limit of US $ 5 billion, mutual funds can make overseas investments subject to a maximum of US $300 million per mutual fund. Further different regulations that allow individuals and Indian mutual funds to invest in overseas securities by permitting individuals to invest through Indian mutual funds have been converged.
� Short selling
In pursuance to budget announcement, SEBI has issued a circular on 20th December, 2007 to permit short selling by institutional investors and securities lending and borrowing to support settlement of short sales. The scheme is likely to be operationalised shortly.
� New derivative products
Mini derivative contract on Index (Sensex and Nifty) having a minimum contract size of Rs. 1 lakh have been introduced. It has been found that globally overall market liquidity and participation generally increases with introduction of mini contracts. Since January 11, 2008 SEBI has also allowed trading on options contracts on indices and stocks with a longer life/tenure of up to five years. These contracts are expected to provide liquidity at the longer end of the market. Since January 15, 2008 SEBI has permitted introduction ofvolatility index on futures and options contracts. An openly available and quoted measure of market
� Investment options for Navaratna and Miniratna Public Sector Enterprises
The Navaratna and Miniratna Public Sector Enterprises have been allowed to invest in public sector mutual funds subject to the condition that they would not invest more than 30% of the available surplus funds in equity mutual funds and the Boards of PSEs would decide the guidelines, procedures and management control systems for such investment in consultation with their administrative Ministries.#p#分页标题#e#
� Investor Protection and Education Fund (IPEF)
SEBI has set up the Investor Protection and Education Fund (IPEF) with the purpose of investor education and related activities. SEBI has contributed a sum of Rs.10 crores toward the initial corpus of the IPEF from the SEBI General Fund. In addition following amounts will also be credited to the IPEF namely: (i) Grants and donations given to IPEF by the Central Government, State Governments or any institution approved by SEBI for the purpose of the IPEF;(ii) Interest or other income received out of the investments made from the IPEF; and (iii) Such other amount that SEBI may specify in the interests of the investors.
POLICY MEASURES AND INITIATIVES
A number of initiatives have been undertaken by the Government, from time to time, so as to provide financial and regulatory reforms in the primary and secondary market segments of the capital market. These measures broadly aim to sustain the confidence of investors (both domestic and foreign) in the country's capital market.
The policy initiatives that have been undertaken in the primary market during 2006-07 include:-
SEBI has notified the disclosures and other related requirements for companies desirous of issuing Indian depository receipts in India. It has been mandated that: - (i) the issuer must be listed in its home country; (ii) it must not have been barred by any regulatory body; and (iii) it should have a good track record of compliance of securities market regulations.
As a condition of continuous listing, listed companies have to maintain a minimum level of public shareholding at 25 per cent of the total shares issued. The exemptions include:- (i) companies which are required to maintain more than 10 per cent, but less than 25 per cent in accordance with the Securities Contracts (Regulation) Rules, 1957; and (ii) companies that have two crores or more of listed shares and Rs. 1,000 crores or more of market capitalization.
SEBI has specified that shareholding pattern will be indicated by listed companies under three categories, namely, 'shares held by promoter and promoter group'; 'shares held by public' and 'shares held by custodians and against which depository receipts have been issued'.
In accordance with the guidelines issued by SEBI, the issuers are required to state on the cover page of the offer document whether they have opted for an IPO (Initial Public Offering) grading from the rating agencies. In case the issuers opt for a grading, they are required to disclose the grades including the unaccepted grades in the prospectus.
SEBI has facilitated a quick and cost effective method of raising funds, termed as 'Qualified Institutional Placement (QIP)' from the Indian securities market by way of private placement of securities or convertible bonds with the Qualified Institutional Buyers.#p#分页标题#e#
In order to regulate pre-issue publicity by companies which are planning to make an issue of securities, SEBI has amended the 'Disclosure and Investor Protection Guidelines' to introduce 'Restrictions on Pre-issue Publicity'. The restrictions, inter alia, require an issuer company to ensure that its publicity is consistent with its past practices, does not contain projections/ estimates/ any information extraneous to the offer document filed with SEBI.
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